The figure shows the nominal GDP and the real GDP of a country over five years.
Which year is most likely the base year used to calculate the real GDP?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 2021
Real GDP uses the prices of the base year; nominal GDP uses current prices. In the base year the current prices are the base-year prices, so nominal and real GDP are equal.
In the figure the two lines meet in 2021. Before it nominal GDP is below real GDP, and after it above, as prices keep rising.
NCERT (2026-27): “2.4 Nominal and Real GDP … For comparison we take the help of real GDP. Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices (or constant prices). Since these prices remain fixed, if the Real GDP changes we can be sure that it is the volume of production which is undergoing changes. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices. …” Glossary: “Base year – The year whose prices are used to calculate the real GDP.” |